Contracts Flashcards
Assignment of a unique service
Assignment occurs when one party delegates performance of a contract to another party, which is generally acceptable. However, a service that is unique can never be assigned without the express consent of all parties to a contract.
I.e. The band, which is well-known, provides a unique performance, which cannot be delegated.
Assignor v. Intended beneficiary
Assignment occurs when one party delegates performance of a contract to another party. In the event of an assignment, both the assignor and assignee are legally responsible for the performance of the contract. Here, there was a delegation of certain tasks to the tree trimmer, thus forming a partial assignment. However, overall responsibility for the work done still rested with the landscaper. Therefore, the mutual determination that the trimmer’s services were not needed before the trimmer performed means that the trimmer still had no rights as an assignor.
A beneficiary, in contractual terms, is a third party who sees material benefits from a contract between other parties. There are two classes of beneficiaries, intended and incidental beneficiaries. An intended beneficiary is a party where performance on a contract was specifically intended to benefit a third party. Incidental beneficiaries, or those who are not specifically named by a contract, do not have the same rights of enforcement. There is nothing to indicate that the tree trimmer was a specific beneficiary, so as an incidental beneficiary, he has no right to enforce the contract.
donee beneficiary’s damages
If a promisor’s performance is intended to benefit a donee beneficiary, the promisee will ordinarily not have suffered any economic losses, and thus will only be able to sue for nominal damages, although courts are willing to order specific performance.
In the event of a shipment of nonconforming goods, a valid contract exists, but …
…the shipping party is in immediate breach.
Importantly, under the UCC, the buyer has the right to accept nonconforming goods and still pursue the seller for breach, as long as they provide notice of nonconformity within a reasonable time.
Substantial performance v. Material breach
Substantial performance occurs when a breach is not serious enough to be considered a material breach, and the performance is considered “close enough.”
Material breach occurs if an express term of the contract is breached and the aggrieved party is damaged as a result.
An express condition is one that is expressly and materially relevant to a contract, and a breach of that condition would create a material breach.
Where only one of the parties to an agreement is mistaken as to a material aspect of the transaction, his mistake is…
…no defense to formation unless the other party knew or should have known of the mistake (or the mistake was due to a clerical error).
Promissory estoppel is an equitable theory that applies …
… in the absence of a contract.
Promissory estoppel is only necessary to enforce a promise where ….
…insufficient consideration exists.
Promissory estoppel is an equitable remedy which arises when (1) a promise is made that (2) would reasonably induce reliance, (3) actual reliance, and (4) injustice without enforcement.
Here, while the uncle made a promise, the second element is doubtful. Would someone go to college simply to receive a puppy as a gift? Probably not. Even if her reliance was genuine, and the niece actually relied on that promise, incurring debt, the question is the level of injustice that would occur if the niece was denied her puppy and the level of detrimental reliance. While incurring student loans could be considered detrimental, the niece also has a college degree, which could be quite valuable in terms of longer-term salary growth. Overall, it seems unlikely the uncle’s gratuitous promise was detrimental to the level required for promissory estoppel. Therefore, the gratuitous promise, without consideration, is not binding, and the uncle will keep the animal.
Where there is full performance of a contract for services that cannot be performed within a year and for which there is no writing that satisfies the Statute of Frauds, full performance will make the contract…
…enforceable against the paying party.
Here, the contract was for services of the consultant, and performance could not be completed within a year from formation of the contract because the agreement required the consultant to perform monthly check-ins for one year. The consultant fully performed her end of the agreement. Even though there is no writing signed by a company representative memorializing the contract, the company must pay the consultant the full contract price.
accepting a buyer’s offer to purchase goods he UCC by shipping nonconforming goods
Unlike the common law, a seller can accept a buyer’s offer to purchase goods under the UCC by shipping nonconforming goods.
i.e.
The dentist offered to purchase four Model A chairs, and the manufacturer accepted the dentist’s offer by shipping four Model B chairs (nonconforming goods). (A contract formed, but the shipment of Model B chairs is also a breach of the contract under the perfect tender rule.)
Under the mailbox rule, …
… an acceptance is effective upon dispatch if the acceptance is properly posted, and a binding contract is created when the offeree dispatches an acceptance.
The mailbox rule does not apply when the offeree first dispatches a rejection, followed by an acceptance; in that case, the first to be received is effective.
knockout rule
Where merchants come to an oral agreement and both merchants send written confirmations and the confirmations contain conflicting terms, the knockout rule applies such that neither term is in the contract.
An offer is a manifestation of intent by the offeror to be bounded by the contract that is communicated to the offeree with definite and certain terms.
Example?
Here, the owner wrote: “I will rent you the seaside cottage on the same terms as last year. I need your answer by June 1,” thereby demonstrating his intent to be bound by a contract.
The Statute of Frauds requires that a suretyship or guarantee for another’s debt be in writing. However, there is an exception when …
…the guarantor’s primary motivation in guaranteeing the debt is his own financial interest.
While minors may form contracts, their obligations are voidable. Can a minor who misrepresents his age to the other party may disaffirm the contract?
Yes.
Disaffirmance is accomplished by words or deeds that objectively signify the election to avoid liability. Disaffirmance can occur prior to performance or even afterwards. Disaffirmance is personal to the minor or his legal representative.
Until the disaffirmance, the contract is binding.
When a minor disaffirms after performance, he must …
…restore any goods or benefits still in his possession. If the goods have been damaged or have depreciated, the minor’s restitution obligation extends no further than returning the goods “as now.”
The “new business rule” says that …
…if a new business cannot calculate its expectation damages with reasonable certainty, then it is automatically barred from recovery.
nder UCC Section 2-706, where a buyer has made an anticipatory repudiation of a contract, a seller may recover…
the difference between the contract price and the resale price.
The seller, however, may not recover where the resale was a “sweetheart” deal not made in good faith or a commercially reasonable manner.
The court may reform the written contract to accurately reflect what the parties agreed to and will enforce those terms. The parol evidence rule does not bar evidence of the prior agreement, since such a principle would effectively preclude reformation.
Whether the source of the discrepancy between the parties’ prior agreement and the written instrument is through the mistake of one or both parties or through the fraudulent misrepresentation by one of them …
…does not matter; in either case, the court may reform the document to conform to the actual prior agreement.
The general rule is that a unilateral mistake will not justify reformation of the contract. Exception?
Reformation of the contract terms may be available where the other contracting party knew or reasonably should have known of the mistake and took advantage of the aggrieved party’s error.
When the buyer refuses to accept goods or otherwise repudiates the agreement, the measure of the seller’s damages will depend on whether or not the seller resells the goods.
Where, the seller resells the goods, he will be entitled to the contract-resell differential, which is the difference between the contract price and the resale price.
When the seller does not resell, he is entitled to the contract-market differential, or the difference between the contract price and the market value of the goods.
He would also be entitled to any incidental or consequential damages, in either case.
Under the parol evidence rule, ….
…evidence of any agreement made prior to or contemporaneous with the written, integrated contract is not admissible to contradict or vary the terms expressed in that contract.
However, the parol evidence rule does not bar the admission of oral agreements made after the execution of a written contract.
right to retract her repudiation and fulfill her obligations under the contract exists if
A gave notice that she would, after all, perform under the contract before the B:
- took any action in reliance on the repudiation,
- gave notice of acceptance of the repudiation, or
- commenced an action against her.
An implied-in-fact contract is formed by
…manifestations of assent other than oral or written language,
i.e., by conduct.
Where a person knowingly accepts offered benefits, such conduct, viewed objectively, may be said to manifest an agreement to the conferral of such benefits, resulting in a
contract implied in fact.
While generally an acceptance must be communicated to an offeror to be effective, courts will often find an acceptance where an offeree silently accepts offered benefits.
A retail store ordered 100 women’s swimsuits
at $10 each, as advertised in the catalog of a
swimwear manufacturer. The manufacturer
shipped 40 swimsuits to the store, along with a
letter stating in relevant part: “We have shipped
you 40 swimsuits at $10 each in response to your
recent order. Please remit $400. Be informed
that limited inventory will prevent us from
being able to ship any additional suits at this
time or at any time during this year’s beach
season.” The store took the 40 suits and began
to sell them. The store immediately sought an
alternate supplier of swimsuits. The best price
it could obtain was $11 per suit from a different
company. The store ordered, received, accepted,
and paid for 60 suits at $11 each from the other
company. The store has refused to pay the
manufacturer the $400, and the manufacturer
has sued for payment.
What is the manufacturer entitled to recover?
The manufacturer is entitled to $340.
As a general rule, advertisements, catalogs, and other price
quotations are construed as invitations for offers rather than offers. If the language of the catalog could be construed as a definite promise to specific offerees, a court might construe it as an offer, but there is no evidence in this question for such an interpretation.
The store’s order is therefore an offer to purchase 100 swimsuits.
Because goods are involved, UCC Article 2 applies. Under
UCC section 2-206(1)(b), an offer to buy goods for prompt shipment invites acceptance either by a promise to ship or by prompt shipment of conforming or nonconforming goods.
In this case, the manufacturer shipped goods that did not conform to the quantity term of the store’s offer.
The Code provides that the shipment of nonconforming goods amounts to both an acceptance of the offer and a breach of the newly formed contract unless the shipper precedes or accompanies the shipment with notice that it is not accepting the offer and is offering the shipment as an accommodation. Proper accommodation notice makes the shipment a counteroffer, rather than an acceptance.
The letter sent by the manufacturer stating that it will be able to ship only 40 suits is not proper accommodation notice. Nothing indicates that the manufacturer is making a counteroffer rather than an acceptance. In fact, the demand for payment suggests that the manufacturer believes there is a contract. Without sufficient accommodation notice, a nonconforming shipment
is both an acceptance of the offer and a breach of contract, entitling the nonbreaching party to damages. Thus, in this case, the store is entitled to deduct the $60 in damages from its payment. [See UCC §2-711]
Impossibility requirements
For impossibility of performance to apply, the impossibility must be “objective”; i.e., the duties could not be performed by anyone.
Also, the impossibility must arise after the contract has been entered into.
If a period of acceptance is stated in an offer, the offeree must accept within that period to create a contract. Failure to timely accept terminates the power of acceptance in the offeree (i.e., a late acceptance will not be effective and will not
create a contract).
Will the mailbox rule apply?
Under the mailbox rule, an acceptance generally is effective upon dispatch (i.e., the acceptance creates a contract at the moment it is mailed or given to the delivery company).
However, the mailbox rule does not apply where the offer states that acceptance will not be effective until received.
***
Note that the developer will not be able to successfully argue that the acceptance was valid since the late delivery was the messenger company’s fault. This would be a valid argument if the mailbox rule applied here, because the acceptance would have been effective when the message was given to the messenger company. However, by opting out of the mailbox rule, the realtor put the burden of any negligence in delivery on the developer.
It will be a defense to enforcement of a contract if either the consideration or the subject matter is illegal.
If the illegality is present at the time of the offer, …
If the illegality arises after the offer but before acceptance,..
If the illegality arises after formation of a valid contract,…
… there is no valid offer.
… the illegality operates to revoke the offer.
…it discharges the contract because performance has become
impossible.
A homeowner offered a landscape gardener
$1,000 to trim and reshape the bushes on her
property if the gardener could finish the job
before her garden party on June 1. The gardener
told the homeowner that he would get back to
her after he had checked his calendar. The next
day, the gardener phoned the homeowner, who
was not at home, and left a message on her
voicemail that he had the time, but could not do
the job for less than $1,200. The gardener did
not hear from the homeowner for several days.
As June 1 drew closer, the gardener phoned
the homeowner again and left another message
on her voicemail stating that “I’ll do the job
for $1,000, this weekend, unless that would be
inconvenient.” The homeowner replayed the
second message just as she was leaving town on
a business trip and did not contact the gardener.
That weekend, unbeknownst to the homeowner,
the gardener took his tools to the homeowner’s
house and trimmed and reshaped the bushes
to the homeowner’s specifications. When the
homeowner returned from her trip several
days later, the gardener presented her with a
handwritten invoice for $1,000.
If the homeowner refuses to pay the gardener,
and the latter brings an action solely for breach
of contract to recover the $1,000 contract
amount, who will likely prevail?
The homeowner will likely prevail on the breach of contract claim because she did not enter into a contract with the gardener. To form a contract, there must be a valid offer and acceptance. The homeowner made an offer, but the gardener rejected the offer the next day with his first phone call. Once an offer is rejected, the offeree’s power of acceptance is destroyed. Thus, the gardener’s second call was not an acceptance, but rather a counteroffer. The homeowner did nothing to accept the gardener’s counteroffer, and this is not the type of case where silence will be deemed to be an acceptance (e.g., where the parties have so agreed or where that has been their course of dealing). Thus, there was no acceptance and no contract to breach. (
Under certain circumstances, an executory bilateral contract may be formed without any communication of acceptance.
What is a common example?
A common example is where prior dealings between the parties, or trade practices known to both, create a commercially reasonable expectation by the offeror that silence represents an acceptance.
In such a case, the offeree is under a duty to notify the offeror if it does not intend to accept.
i.e.
Here, despite the language in the invitation making leases subject to approval, the leasing company never sent any notification of approval prior to sending out the tickets and
invoice right before the season would start. This course of dealing over the past five years gave the advertising agency reason to expect that the leasing company’s silence after the invitation was returned constituted an acceptance by the leasing company, regardless of the company’s actual
intent.
A counteroffer serves as …..
…. both a rejection terminating the original offer and a new offer from the original offeree, thus reversing the former roles of the parties and giving the original offeror the right to accept or reject the new offer.
A sporting goods retailer whose tent stock was
running low saw a listing for the tent she wanted
priced at $90 in the catalog of a large camping
goods manufacturer. The retailer phoned the
manufacturer and placed her order for 10 tents
on May 1. The next day, the manufacturer
mailed the retailer a letter informing her that
the tents were now $92 and that they would be
shipped to her on May 16. The retailer received
the letter on May 4, but never responded. On
May 15, the retailer received a catalog from
another company showing tents similar to the
ones that she ordered, but for a cost of $70.
She immediately called the manufacturer to
cancel her order. Nevertheless, the manufacturer
shipped the tents to the retailer on May 16.
Assuming that the parties’ communications
were sufficient to form a contract, on what day
was the contract formed?
The contract was formed on May 2.
An offer to buy goods for shipment is generally construed as inviting acceptance either by a promise to ship or by shipment.
Here, the letter constitutes a
promise to ship and thus is an acceptance. The rule for acceptances is that they are effective as
soon as they are dispatched, which was May 2.
In a contract for the sale of goods, the failure to state the price does not prevent formation of a contract if the parties intended to form a contract without the price being settled. In such
a case, if the price is left to be agreed to by the parties and they fail to agree,
a reasonable price at
the time of delivery will be supplied by the court. [UCC §2-305]
On November 3, an investor who had watched
his stocks sink to unprecedented low levels sent
a fax message to a dealer in precious metals:
“Please quote your best price on 800 troy ounces
platinum bars for immediate delivery at my
bank.” At 10 a.m. the next morning (November
4) the dealer replied by fax, “My best price
is $475 per ounce.” The investor received the
dealer’s message later on that same day.
What is the best characterization of the
communications between the investor and the
dealer?
The investor’s communication was a request for an offer and the dealer’s response was an offer.
For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms. The investor’s communication does not pass the test because it is clear on its face that he did not want to be bound by whatever price the dealer came up with, but rather wanted to find out what the dealer would offer.
The dealer’s communication, on the other hand, passes the test. While it said nothing more than the price, it was sent in response to a request containing specific delivery terms and a specific quantity. Under the circumstances, the dealer’s response would have created a reasonable expectation
in the investor that the dealer was willing to enter into a contract under the terms of the two
communications.
Shortly after a series of rapes took place
within a city, the city council approved the
offering of a $25,000 reward for the arrest and
conviction of the perpetrator of the rapes. Information
concerning the reward was published in
the local newspaper.
In which of the following ways could the city’s
reward offer be effectively accepted?
Offers of this type normally require only that the offerees supply information leading to the arrest and conviction of the culprit.
The language of the reward offer should not be read with
total literalness, but rather in the context of what the city was seeking to obtain and the normal
duties required to accept an offer of this kind.
Under the divisibility doctrine,….
…if a party performs one of the units of a divisible contract, he is entitled to the agreed-on equivalent for that unit even if he fails to perform the other units.
It is not a condition precedent to the other party’s liability that the whole contract be performed.
For a contract to be divisible:
(i) the performance of each party must be divided
into two or more parts under the contract,
(ii) the number of parts due from each party must be
the same, and
(iii) the performance of each part by one party is agreed on as the equivalent of the
other party’s corresponding part.
Accord
An accord is an
agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party, some other, different performance.
The accord must be supported by consideration, but the consideration is sufficient if it is of a different type than called for under the original contract, even if the substituted consideration is of less value.
An accord suspends the right to enforce the original agreement.
Performance of the accord (i.e., satisfaction) cuts off the parties’ rights to enforce the original contract and
discharges the accord.
If a creditor breaches an accord agreement, the debtor has the option of either raising the accord agreement as an equitable defense in the creditor’s action and asking that it be dismissed,
or waiting until he is damaged (i.e., until the creditor is successful in an action on the original contract) and then bringing an action at law for damages for breach of the accord contract.
condition subsequent
v.
condition precedent
condition subsequent is one the occurrence of which cuts off an already existing absolute duty of performance
(it means other party doesn’t have to perform)
condition precedent is one that must occur before an
absolute duty of immediate performance arises in the other party (it means other party must perform)
In July of last summer a grape grower
contracted with a winery to deliver “500 tons
of premium quality pinot chardonnay grapes
grown on my ranch.” The price was to be $1,000
per ton and delivery was to be on or before
September 15. In August of the same year, the
grape grower entered into an identical contract
with a vineyard to sell 300 tons of premium
quality pinot chardonnay grapes.
The grape grower completed his harvest by
September 10 and had 800 tons of premium
quality grapes. On September 11, an unexpected
rain ruined 400 tons, and the grape grower
notified the winery and the vineyard on that
day that he would only be able to deliver 250
tons to the winery and 150 tons to the vineyard.
On September 14, the vineyard purchased an
additional 150 tons of premium quality pinot
chardonnay grapes from a different grape
farmer, one of several other available sources for
premium quality pinot chardonnay grapes. These
grapes along with the 150 tons from the grape
grower gave the vineyard the 300 tons it needed.
On September 15, what is the winery’s legal
position with regard to the grape grower’s failure
to deliver the 500 tons of grapes required by his
contract?
When crops are destroyed in the case of a farmer who has contracted to sell crops from a designated tract of land,
the loss may be governed either by UCC section 2-613 (casualty to identified goods) or
section 2-615 (failure of presupposed conditions/commercial impracticability).
The result is the same
under either section.
Under section 2-613, if goods identified when the contract is made suffer casualty without fault of either party before the risk of loss passes to the buyer, the contract maybe avoided. If the loss is partial, the buyer may treat the contract as avoided or accept the goods with allowance from the price for the deficiency. The buyer does not have any further rights
against the seller and thus cannot sue the seller for breach.
Under section 2-615, a crop failure resulting from an unexpected cause excuses a farmer’s obligation to deliver the full amount as long as he makes a fair and reasonable allocation among his buyers. The grape grower has done
this by allocating pro rata between the winery and the vineyard.
Nevertheless, under UCC section 2-616, the buyer may either accept the proposed modification or terminate the contract.
Under either provision, the winery is free to reject the 250 tons of grapes.
Buyers of a house with an old aboveground
pool wanted it removed, so the current
homeowners agreed that they would arrange
to have the pool moved to their new home, but
since the sale was occurring in winter, the pool
would have to be moved at a later date. The
parties therefore agreed that the buyers would
pay all but $5,000 of the home’s sale price at
closing, and then pay the final $5,000 six months
after the sale. The contract further stated:
It is understood and agreed that the
purchasers’ obligation to pay the
$5,000 six months after the sale shall
be voided if the current homeowners
have not, within three months after the
aforesaid sale, removed the existing
pool in the rear of the house.
What is the homeowners’ removal of the pool
from the backyard of the house?
Condition subsequent is one the occurrence of which cuts off an already existing duty of performance.
The form of the condition requiring removal of the pool is that of a condition subsequent because, under the language of the contract, failure to do so will cut off the buyers’ duty to pay
the $5,000.
Accomplishing accord and satisfaction by a check.
An accord and satisfaction may be accomplished by a good faith tender and acceptance of a check conspicuously marked “payment in full” where there is a bona fide dispute as to the amount owed.
A general contractor advertised in a trade
publication that she planned to bid on the
construction of a new building. The advertisement
welcomed bids from subcontractors to
perform various functions, such as plumbing,
electrical work, and masonry. The lowest
plumbing bid she received was from a plumber
for $10,000. The general contractor used that
bid in preparing her bid and submitted the bid to
the client. Shortly thereafter, the plumber called
her and explained that there was a mistake in
his bid and he could not perform the work for
less than $12,000. The general contractor was
awarded the contract and told the plumber she
was accepting his $10,000 bid, but the plumber
reiterated that he would not do the work for less
than $12,000. The general contractor hired a
different company to do the plumbing work on
the building at a cost of $12,000. She now sues
the plumber for damages.
What is she entitled to recover?
(B) $2,000, which represents the difference
between the plumber’s bid and the amount
she had to pay for the plumbing work.
The plumber can be held liable because his offer will be deemed irrevocable for a reasonable length of time on a theory of promissory estoppel.
Promissory estoppel renders an offer binding as an option contract even without consideration if the offeror should reasonably expect it to induce action or forbearance of a substantial character by the offeree before acceptance, and
such action or forbearance is in fact induced.
The plumber offered to do the work for $10,000 if the general contractor was awarded the contract.
The plumber should have expected that the general contractor would use this figure to prepare her bid and that if she were awarded the contract, she may be bound. This is what occurred.
The measure of the general contractor’s damages is the amount she reasonably paid for a substitute performance, less the amount saved as a consequence of the breach; i.e., the $12,000 paid to the other plumbing company minus the $10,000 not paid to the plumber, or $2,000
Neighbors of an apparently destitute couple
bought a month’s supply of food and gave it to
them. Later, the wife confided in the neighbors
that she and her husband did have money and
that, because they had been so kind, she was
leaving them money in her will. When the wife
died, at the neighbors’ request the husband gave
the neighbors the following signed instrument:
“In consideration of my wife’s promise to our
neighbors, and their agreement not to sue her
estate, I agree to pay them the sum of $5,000.”
When the husband died of a heart attack several
days later, the neighbors asked the administrator
of his estate to pay them the $5,000. The administrator
refused on the ground that there was no
consideration for the agreement.
On which of the following theories would it be
most likely that the neighbors would recover?
The most likely theory is that the husband and the neighbors entered into a valid compromise.
If the neighbors have given up a good faith claim, their agreement with the husband is a compromise supported by valid consideration. Thus, there is an enforceable contract.
Exclusivity is implied in output or requirements K?
Exclusivity is implied in a requirements contract; otherwise the
buyer’s promise would be illusory.
Consideration for a requirements
contract exists because the promisor is suffering a legal detriment by parting with the
legal right to buy goods he may need from another source. On the other side, the manufacturer
has suffered legal detriment by agreeing to sell to the retailer any amount it requires at the stated
price. The manufacturer has parted with any discretion in the amount sold to the retailer and its
price.
Reservation of an unqualified right to cancel or
withdraw from a contract at any time may amount to an illusory promise. However, the promise is not illusory, and there is a valid consideration, if the right to cancel is restricted in any way.
Example?
Here, the right of either party to cancel is restricted because it must be preceded by reasonable notice to the other party, which was provided. Therefore, the promises are not illusory, and both parties are bound.
The manufacturer finds itself confronted with circumstances that present extreme and unreasonable difficulty and expense in complying with its contractual duties. While this additional test might not be sufficient to discharge the manufacturer’s duties on grounds of impracticability, it is clearly grounds for supplying the manufacturer with a good
faith reason for canceling the contract.
Output contract
meaning that the seller has promised to sell to the buyer all of the goods the seller produces, and the buyer has agreed to buy
that amount from the seller.
As a general rule, a contract requires a bargained-for exchange
between the parties as consideration; “past” or “moral” consideration is usually insufficient.
Among the many exceptions to this rule is …
…where a technical defense such as the statute of limitations
bars enforcement of the prior obligation and a new promise is made in writing.
In such a case, courts will state that the “moral” consideration is sufficient consideration for the new agreement,
or that the existence of the prior obligation is a substitute for consideration. Regardless of how the courts characterize it, the new promise will be enforceable only according to its terms,
not the terms of the original obligation.
In cases where the builder breaches after partially performing, the owner of the land is entitled to ….
the cost of completion plus reasonable compensation for any delay in performance.
Courts generally allow the builder to offset or recover for work performed to date to avoid the unjust enrichment of the owner.
In a contract for the sale of goods, a seller can collect his lost profits when the buyer breaches if the seller cannot be made whole by a subsequent sale of the item contracted for. This occurs where the seller can obtain or manufacture as many goods as it can sell (e.g., a car dealership), because in such a situation, the seller would have been able to sell to the subsequent purchaser anyway. This is known as a lost volume situation, and in such a situation, the UCC allows the seller to sue for his lost profits. Generally, lost profits are measured by …
… the difference between the cost of goods and the contract price, less the seller’s saved expenses.
i.e.
KP - what the dealer paid to purchase the car from the manufacturer
A homeowner purchased a large recreational
vehicle. Local ordinances in the homeowner’s
suburb prohibited residents from parking recreational
vehicles on the street or in an open
driveway, so the homeowner contacted a local
contractor and explained his requirements for a
garage. The contractor measured the vehicle and
then entered into a written contract to build a
garage for the homeowner at a price of $5,000,
payable on completion of the job. When the
garage was finished but before the contractor
was paid, the homeowner drove the vehicle
into the garage, only to discover that the garage
was three inches too short to accommodate the
vehicle. The homeowner was told that it would
cost $4,000 to partially dismantle the garage
and rebuild it to fit the vehicle. The homeowner
refused to pay the contractor anything for the
job. The contractor consulted with several
independent real estate appraisers, and they all
agreed that the garage had enhanced the value of
the homeowner’s property by $6,000.
If the contractor sues the homeowner, what
amount will the contractor likely recover?
(A) $5,000, because a three-inch variation in
length is, at most, a minor breach.
(B) $2,000, measured by the difference
between the amount that the garage
enhanced the value of the property and the
cost to rebuild the garage to specifications.
(C) $1,000, measured by the difference between
the contract price and the amount it would
cost to rebuild the garage to specifications.
(D) Nothing, because the three-inch error was
a material breach, and the contractor will
be unable to successfully claim substantial
performance.
(C) The contractor will recover $1,000 in a restitution or quasi-contract action. Despite having built a garage, the contractor has breached the contract here. He was to build a garage that would fit the homeowner’s recreational vehicle and the garage that he built is too short. Moreover, the breach was material, even though the garage was a mere three inches short, because the homeowner did not receive the substantial benefit of his bargain—a place for his vehicle. Therefore, the contractor
cannot recover in contract and (A) is incorrect. Nevertheless, courts agree that where the breach is not willful, the contractor can recover on the failed contract in restitution or quasi-contract to prevent unjust enrichment. Here, it is clear that the breach was not willful. (D) is therefore incorrect.
Regarding the amount of recovery, most courts would limit the recovery to the contract price (rather than the benefit received by the nonbreaching party), offset by the damages to the nonbreaching party (here, the $4,000 cost of rebuilding the garage as bargained for). Thus, (C) is correct and (B) is incorrect.
A contractor gave the low bid for some
electrical repairs to a homeowner’s house. Based on this bid, the contractor and the homeowner
entered into a contract stating that the contractor
would perform the electrical repairs for $6,000. Before beginning work on the project, the
contractor notified the homeowner that he would
lose money on the job at that price, and would not proceed with the work unless the homeowner would agree to increase the price to $9,000. The homeowner thereupon, without notifying the contractor, entered into a contract with an electrician to make the repairs for $7,500,
which was the fair market cost of the work to
be done. The electrician finished the house on
schedule and then showed the homeowner that
he (the electrician) had spent $8,500 on the job.
The homeowner thereupon paid the electrician
the full balance of their contract price plus an
additional $1,000, so that the electrician would
not lose money on the job. In a contract action by the homeowner against the contractor, how much will the homeowner recover?
(C) $2,500, the difference between the contractor’s original contract price and the total
amount the homeowner paid the electrician for the repairs.
(D) $1,500, the difference between the contractor’s original contract price and the electrician’s contract price.
(D) The homeowner can recover $1,500, the difference between the contractor’s contract price and the contract price of the substitute performance.
Here, while the homeowner actually paid $2,500
more than the contractor’s contract price to have the house repaired, he was obligated to pay
only $1,500 more because the electrician had a legal duty to make the repairs to the house for
his contract price and no more. _The homeowner will not be able to recover the $1,000 difference
because he has a duty to mitigate damages, and paying more than he was actually obligated to pay breaches the duty._
Liquidated damages clauses are enforceable only if …
…damages were difficult to estimate at the time the contract was formed, and the amount agreed upon is a reasonable forecast of the damages that would result from a breach.
In a writing signed by both parties, a renowned architect agreed to design and supervise construction of a new house for a buyer.
The architect’s fee was to be paid on completion
of the house. When the design plans were about two-thirds complete, the architect assigned
to a newly licensed architect “all of my rights and duties under my design and constructionsupervision contract with the buyer.” The novice architect expressly promised the architect to carry out the work to the best of her ability. The buyer, on learning of the assignment, refused to allow the novice architect to proceed on the project and brought an action against the architect to compel him to resume and complete
performance of the contract. Is the buyer entitled to such relief?
(A) Yes, because the architect’s services under
the contract are unique.
(B) Yes, because the architect has personally
completed two-thirds of the design work.
(C) No, because the architect-buyer contract is
one for personal services by the architect.
(D) No, because the architect effectively
delegated his remaining duties under the
architect-buyer contract to the novice architect.
(C) The buyer cannot compel the architect to resume performance. Contracts for personal services are not subject to specific performance notwithstanding the fact that damages might be inadequate or difficult to assess or the services to be performed are unique. The courts reason that specific performance of personal service contracts is tantamount to involuntary servitude and would present enforcement problems. At most, the buyer would be able to obtain an injunction to prevent the architect from working on another project at the times the architect agreed to work for the buyer.
When a buyer breaches by repudiating its offer, the seller has a right to recover either …
…the difference between the contract price and the market price
or
the difference between the contract price and the resale price,
plus incidental damages.
Consequential damages
are special damages and reflect losses over and above standard expectation damages. These damages result from the nonbreaching party’s particular circumstances.
These damages may be recovered only if, at the time the contract was made, a reasonable person
would have foreseen the damages as a probable result of a breach. Therefore, to recover consequential damages, the plaintiff must show that the breaching party knew or had reason to know of the special circumstances giving rise to the damages.
A woman ordered several cases of rubber
bracelets from an online wholesaler. The
bracelets were sold only in bulk and they were
marketed as intended for resale. The bracelets
were stamped with a political message and
the date of an upcoming political rally in the
woman’s city. The woman, like several others
who ordered the bracelets, planned to resell the
bracelets at the event to make a profit. Due to the unexpected popularity of the event, however, the wholesaler was overwhelmed with similar orders and was late in shipping the bracelets to the woman. The woman received her order several days after the rally, thus thwarting her plans. The woman can prove that the bracelets were in such high demand at the rally that the others who received their bracelets on time quickly resold all their bracelets at twice their wholesale cost and that she could have sold even more bracelets at the rally than she ordered if she had been given the chance. Can the woman recover her lost profits from
the wholesaler?
(A) Yes, as a lost volume seller.
(B) Yes, as reliance damages.
(C) Yes, as consequential damages.
(D) No, as her profits are too speculative.
(C) The woman can recover her lost profits as consequential damages. In addition to the standard measure of damages, consequential damages may be awarded for further losses resulting from a breach of contract that any reasonable person would have foreseen would occur from the breach at the time of entry into the contract.
Here, the wholesaler was well aware that the bracelets were going to be resold at the rally. The wholesaler had marketed the bracelets for this very reason. The bracelets were stamped with the date of the rally. It was foreseeable that delivery of the bracelets after that date would result in a loss to the buyer.
When an assignment has been made, but the obligor on the contract (here, the retailer) has not been informed of the assignment, it is still obligated to pay…
…the party with whom it originally dealt.
A contract between an investor and an
inventor stated that the investor will finance all
of the inventor’s expenses for the next six months in exchange for half of the profits from any inventions that the inventor develops during that time. During those six months, the investor runs into financial problems and borrows $200,000 from a bank. The investor executes a written instrument providing that the bank “is entitled to collect the debt from my share of the profits, if any, under the inventor contract.” The bank gave prompt notice of this transaction to the inventor. If the inventor thereafter refuses to account for any profits to the bank and the bank sues the inventor for the investor’s share of profits then realized, what is the inventor’s strongest argument in defense?
(C) The bank is not an assignee of the investor’s
rights under the investor-inventor contract.
(D) The bank is not an intended third-party
beneficiary of the investor-inventor contract.
(C) The only theory under which the bank can recover the investor’s share of the profits is that
the bank is an assignee of the investor’s rights.
(D) would not provide a strong defense for the
inventor, because it is clear that the bank was not an intended beneficiary of the investor-inventor
contract.
Intended beneficiary
A party is an intended beneficiary of the agreement when
(i) she was expressly designated in the contract,
(ii) some performance is to be made directly to her, and
(iii) she stands in a close relationship to the promisee, suggesting that she intended for her to benefit.
However, an intended beneficiary can enforce the contract only after his rights have vested.
Vesting will occur when the beneficiary
(i) manifests assent to the promise in a manner invited or requested by the parties,
(ii) brings suit to enforce the promise, or
(iii) materially changes position in justifiable reliance on the promise.
A store sold office equipment and supplies to
various businesses in the area. The store entered
into a written agreement with an electronics company to purchase all of its monthly requirements of printers for a period of five years at a specified unit price. The agreement contained a clause prohibiting assignment of the contract. Shortly thereafter, the electronics company assigned the contract to a finance company as security for a loan. The store subsequently ordered the printers from the electronics company, which were delivered on time. Which of the following accurately states the
legal effect of the clause prohibiting assignment
of the contract?
(A) The clause as properly interpreted was not
breached, and the assignment was effective.
(B) The clause made the assignment to the
finance company ineffective.
(C) The electronics company’s assignment
was a breach but was nevertheless effective
to transfer to the finance company the
electronics company’s rights against the
store.
(D) The clause is effective if the parties can
establish a rational reason for including the
covenant into their agreement.
(A) The clause was not breached, and the assignment was effective.
Under the UCC, which governs this sale-of-goods case, “unless the circumstances indicate the contrary, a prohibition of assignment of ‘the contract’ is to be construed as barring only the delegation to the assignee of the assignor’s performance.”
Here, the electronics company assigned to the finance company the right to receive payment on its contract with the store. There was no delegation of duties to the finance company (the assignee). Therefore, when the electronics company “assigned the contract” to the
finance company, it assigned only the right to payments, and it did not breach its contract with the store.
On December 10, a housepainter entered
into a contract with a homeowner to paint her
house for $8,000, to be paid on completion of
the work. On December 20, before the work
was completed, the painter sent a letter to the
homeowner telling her to pay the $8,000 to
an assignee, whom he identified by name. The
painter sent a copy of the letter to the assignee,
then completed the work. The homeowner
refused to pay the assignee, and the assignee
sued the homeowner for the $8,000. Which of the following, if true, would be the homeowner’s best defense?
(B) The assignee was incapable of performing
the painter’s work.
(C) The painter had not performed his work in
a workmanlike manner.
(D) The assignment was made without consideration.
(C) The homeowner’s best defense is that the painter had not performed his work in a workmanlike manner. The painter has assigned his claim against the homeowner to an assignee. In the absence of an enforceable agreement to the contrary, an assignee would take subject to defenses good against his assignor. Therefore, if the painter has not properly performed the work, the homeowner could use this as a defense in a suit brought by the assignee.
(B) is wrong because the fact that the assignee is incapable of performing the painter’s work is immaterial. The painter merely assigned his right to payment; he did not delegate his painting duties to the assignee.
(D) is wrong because consideration is not required for an assignment to be valid.
A third-party donee beneficiary has no cause of action against the promisee, because the promisee’s act is gratuitous and he may not be held to it.
The only time a donee beneficiary has recourse against the promisee is when…
…the promisee himself tells the donee beneficiary about the contract and should foresee that the beneficiary would rely on it.
If the beneficiary does reasonably rely on the contract to his detriment, the beneficiary can
sue the promisee directly under a promissory estoppel, not a third-party beneficiary, theory.
A homeowner wanted to have his yard
landscaped. He called a number of commercial
establishments that do such work and received
a bid for $5,000, a bid for $4,500, and a bid for
$4,000. The homeowner entered into a contract
with the low bidder to have the yard landscaped
for $4,000. Shortly before the low bidder was scheduled to begin work, he called the homeowner and told him that his secretary had made a mistake in adding the figures, and he could not possibly do the work for less than $4,600. If the homeowner sues the low bidder for
breach of contract, who will prevail?
(B) The homeowner, because he did not have
reason to know of the low bidder’s mistake.
(C) The low bidder, because he had not yet
commenced performance under the
contract.
(B) The homeowner will prevail in his suit against the low bidder for breach of contract because the
homeowner did not know or have reason to known of the low bidder’s mistake with respect to the amount of its bid.
Where only one of the parties entering into a contract is mistaken about facts relating to the agreement, the unilateral mistake will not prevent formation of the contract unless the nonmistaken party knew or had reason to know of the mistake.
Here, the relatively small difference between the $4,000 bid and the next lowest bid of $4,500 (where there was also a $500 difference between the next lowest bid and the highest bid) probably would not have alerted the homeowner to the existence of a mistake.
(C) is incorrect because it is irrelevant that the contract is still executory.
A contract can be reformed to reflect the original intent of the parties where there has been a mutual mistake in the integration.
The plaintiff’s negligence is not a bar to reformation.
i.e. P did not read the K and didn;t notice that it was missing a clause beneficial for him.
A plaintiff contended that a defendant owed
him $6,000. The defendant denied that he owed
the plaintiff anything. Tired of the dispute, the
defendant eventually signed a promissory note
by which he promised to pay the plaintiff $5,000
in settlement of their dispute. In an action by the plaintiff against the defendant on the promissory note, which of the following, if true, would afford the defendant the best defense?
(A) Although the plaintiff honestly believed
that $6,000 was owed by the defendant, the
defendant knew that it was not owed.
(B) Although the plaintiff knew that the debt
was not owed, the defendant honestly was
in doubt whether it was owed.
(C) The original claim was based on an oral
agreement, which the Statute of Frauds
required to be in writing.
(D) The original claim was an action on a
contract, which was barred by the applicable
statute of limitations.
(B) The scenario in (B) provides the best defense because it would enable the defendant to rescind
based on unilateral mistake.
Rescission of a contract is available when one party is mistaken about material facts relating to a contract, the mistake adversely affects that party, and the other party knows of the mistake.
(A) is wrong because in this case it is the nonmistaken party who is adversely affected. (Note that under choices (A) and (B) it is unclear whether the plaintiff’s claim is based on a contract. If it is, the promissory note will be treated as a modification. The modification could be rescinded as discussed above, but there also is an issue of whether there was valid consideration for the modification under the preexisting legal duty rule.
Under the preexisting legal duty rule, past consideration is valid consideration if there is an honest dispute as to duty owed. There would be no honest dispute under (B) because the nonmistaken party is taking advantage of the mistaken party, but this is not true in (A).
(C) is wrong. The
Statute of Frauds is not a problem here because the plaintiff is seeking to enforce the promissory
note—which complies with the Statute of Frauds—and not the original agreement. Neither does the preexisting legal duty rule negate the consideration here because there is an exception to the rule for reaffirmations of voidable promises (e.g., promises unenforceable under the Statute
of Frauds, promises by infants, promises based on fraud, etc.).
(D) is wrong because the statute of limitations would run anew on the note that the plaintiff is trying to enforce, and there is no preexisting legal duty consideration problem because of the exception to the rule for “technical defense bars”—a new promise to pay a legal obligation barred by a technical defense (such as the
statute of limitations) is enforceable according to the terms of the new promise.
A licensed real estate broker and a homeowner
entered into a written listing agreement in which
the homeowner promised, among other things,
to pay the real estate broker a 6% commission of
the selling price of the homeowner’s home if the
real estate broker obtained a buyer ready, willing,
and able to purchase it. The homeowner’s home
was listed for $180,000 in a service made available to real estate professionals. A prospective buyer, after going to the real estate broker’s office and viewing the homeowner’s
home, submitted a written offer to purchase
the home for $180,000. The homeowner rejected
this offer by not accepting it within the stated
period. The buyer brings an action against the
homeowner for specific performance, seeking to
compel him to sell the home.
What is the probable outcome of this litigation?
(A) The homeowner will win, because no writing
or writings constitute a memorandum
sufficient to satisfy the Statute of Frauds.
(B) The homeowner will win, because the
buyer’s remedy at law is adequate.
(A) The buyer cannot obtain specific performance against the homeowner because the absence of a written memorandum signed by the homeowner and containing the essential terms of an agreement between the buyer and the homeowner means that there is no enforceable contract. To obtain specific performance, there must be an enforceable contract between the parties. Pursuant to the Statute of Frauds, a contract for the sale of land is not enforceable unless it is evidenced by a writing signed by the party sought to be bound. I_n addition to this signature, the writing should contain a recital of consideration, the terms and conditions of the agreement, the identity of the party sought to be charged, and an identification of the contractual subject matter._ The buyer is attempting to obtain specific performance of a contract to purchase the homeowner’s house. Thus, the buyer must show the existence of a contract through a writing sufficient to satisfy the Statute of Frauds. The only writings mentioned in the facts are the buyer’s written offer to purchase the house and the real estate listing agreement between the homeowner and the real estate broker. The
latter reflects only an agreement between the homeowner and the real estate broker as to the terms of the real estate broker’s services as a broker in connection with the sale of the homeowner’s house. This in no way constitutes written evidence of an agreement between the homeowner and the buyer. The buyer’s written offer was never signed by the homeowner and was, in fact, rejected by the homeowner in a manner consistent with its terms. Thus, this writing does not memorialize an agreement between the homeowner and the buyer for the sale of the homeowner’s house; no agreement was ever reached. Therefore, there is no enforceable contract that can be the subject of specific performance.
(B) is incorrect because a purchaser of land is almost always deemed to have an inadequate
remedy at law.Each parcel of land is always considered unique; i.e., unlike any other that could be purchased with the same sum of money. Thus, if the buyer did have a cause of action against the homeowner, he would not have an adequate remedy at law.
(C) is incorrect because the facts do not indicate that the real estate broker and the homeowner intended that the buyer or any other third person benefit by their agreement.
Application of the factors that courts use to determine whether a third party is an intended beneficiary who can enforce a contract between the contracting parties or an incidental beneficiary who has no rights under the contract indicates that the buyer is not an intended beneficiary. The agreement did not:
(i) expressly designate a third party;
(ii) indicate that performance was to be made directly to a third party; or
(iii) state that a third party had any rights under the contract.
Also, there is no relationship between the buyer and either the homeowner or the real estate broker from which it could be inferred that either the homeowner or the real estate broker wished to make the agreement for the buyer’s benefit.
Thus, the buyer is not an intended beneficiary of the agreement between the homeowner and the real estate broker and cannot recover on that agreement.
A member of an out-of-town yacht club agreed
to buy a luxury boat from a local yachtsman, a
boat which the parties referred to as “the ‘Lady’
boat” throughout their preliminary negotiations.
The yachtsman owned two boats—“Lady Be
Good” and “Lady Luck.” The yachtsman’s intent
was to sell “Lady Luck,” while the club member
intended to buy “Lady Be Good,” which the
club member knew was once owned by the club
member’s favorite celebrity. The club member
was unaware of the existence of “Lady Luck.”
The written contract for the yachtsman’s “Lady”
boat included a sale price of $100,000. When the
yachtsman delivered “Lady Luck” to the club
member’s slip, the club member saw that it was
not the boat he had intended to purchase and
refused to accept delivery. If the club member sues the yachtsman for specific performance to compel him to deliver “Lady Be Good,” and the yachtsman countersues to compel the club member to accept delivery of “Lady Luck,” who should prevail?
(B) The club member, because the yachtsman
knew that he had two “Lady” boats at the
time the contract was formed.
(C) Neither party, because an ambiguity existed
at the time the contract was formed, and the
parties did not intend the same meaning.
(B) The club member should prevail, because the yachtsman knew that he had two “Lady” boats and the club member did not.
This is a case of ambiguous contract language, because the expression of the parties’ agreement (here, to purchase the yachtsman’s “Lady” boat) is open to two different interpretations.
In cases where one party is aware of the ambiguity and the other party is not at the time of contracting, a contract will be enforced according to the intent of the party who was unaware of the ambiguity.
In this case, the yachtsman owned two boats, each with the word “Lady” in its name, but he intended to sell the boat known as “Lady Luck.” The club member, on the other hand, intended to buy the boat known as “Lady Be Good” and was unaware that the yachtsman owned a second boat called “Lady Luck.” The club member did not know that an ambiguity existed at the time the contract was formed, while the yachtsman, of course, knew that he owned two boats with the word “Lady” in the name, and thus knew of the ambiguity. Therefore, the contract will be enforced in accordance with the club member’s intention to purchase “Lady Be Good,” because he was the party who was unaware of the ambiguity.
(C) is incorrect because an ambiguity alone does not void a contract; there are different rules as to
whether a contract containing an ambiguity is or is not voided. It depends on who knew of the
ambiguity at the time the contract was formed.
If neither party, or if both parties, are aware of the ambiguity, no contract would be formed *unless both parties intended the same meaning.*
Here, because one party knew of the ambiguity and the other did not, the contract is still enforceable.
A steelmaker purchased a tube rolling machine from a manufacturer of heavy machinery. The machine was sold unassembled for a price of $150,000, with $25,000 payable on delivery and the balance ($125,000) to be paid in 10 monthly installments of $12,500 each. After the machine parts were delivered, the steelmaker contacted an assembly company that specialized in assembly and installation of large and complex manufacturing machinery, and told the company that the machinery had to be up and running within 45 days, or the steelmaker would be in breach of a major contract that it relied on for much of its current revenue. The company
agreed, in a written contract with the steelmaker,
to assemble and install the tube rolling machine
within 45 days at a price of $15,000. Two weeks later, the manufacturer that sold the tube rolling machine to the steelmaker learned that the assembly company was planning to stop work, due to a strike by its labor union. The manufacturer orally offered the assembly company a $3,500 bonus if it would agree to
finish the job for the steelmaker. The company accepted the manufacturer’s promise and
completed the assembly and installation of the
tube rolling machine with supervisory personnel
within the 45-day time limit set in the agreement
between the company and the steelmaker.
However, the manufacturer refused to pay the
assembly company the $3,500 bonus, so the
company sued the manufacturer. Which of the following would be the assembly company’s strongest argument to prevail?
(A) The assembly company owed the manufacturer no preexisting duty to complete the
job for the steelmaker, and such completion was sufficient bargained-for consideration for the manufacturer’s promise to pay the additional $3,500.
(B) Because the $3,500 payment was characterized as a “bonus,” no further consideration was required and the manufacturer is bound to its promise.
(C) The assembly company would not have
completed the job for the steelmaker within the time limit except in reliance on the manufacturer’s promise to pay the additional $3,500.
(A) The assembly company’s best argument is that it owed the manufacturer no preexisting duty to complete the job, and such completion was sufficient bargained-for consideration.
Generally, a promise is unenforceable unless it is supported by consideration; thus, for the manufacturer’s promise to be enforceable, there must be consideration supporting it. Consideration is defined as a bargained-for exchange of something of legal value. Most courts hold that the thing exchanged will have legal value if it causes the promisee to incur a detriment. A minority of courts hold that a benefit to the promisor is also sufficient.
Thus, the company’s best argument would be one that includes the idea that it incurred a bargained-for detriment, and this is reflected by (A).
The problem with (A) is the preexisting legal duty rule. Traditionally, courts have held that performance of an existing legal duty is not sufficient consideration. However, the rule is riddled with exceptions, and one exception recognized in most jurisdictions applies when, as here, the preexisting duty is owed to someone other than the promisor. Thus, (A) is the best argument because it provides for a full contract recovery.
(B) is wrong because merely identifying a promise to pay as a “bonus” does not obviate the need for consideration. For a promise to be enforceable, there must be consideration.
(C) is wrong because mere reliance on a promise is not enough to make a contract enforceable.
For reliance to provide a substitute for consideration, under the doctrine of promissory
estoppel, the promisor must reasonably expect that its promise will induce reliance, and such reliance must reasonably be induced.However, the promise will be enforceable only to the extent necessary to prevent injustice.
Here, because the company had a duty to complete the work even without the manufacturer’s promise, there is no indication that justice would require payment of the $3,500; there is nothing in the facts to show the company incurred more costs, etc. Thus, the recovery to the company under a promissory estoppel theory would undoubtedly be less than the
contract recovery possible under (A).
A man fed a lost cat and returned it to its owner. She was so happy to see her cat that she promised to leave the man money in her will.
When the cat owner died a few days later, the
man visited the owner’s daughter demanding his share of the estate. All of the cat owner’s bank accounts had been held in joint tenancy with her daughter. The daughter reluctantly signed a document stating that she would pay the man $500 in exchange for his agreement not to sue her mother’s estate. She later had second
thoughts and refused to pay the man on the
ground that there was no consideration for the
agreement. Besides the consideration stated in the daughter’s written instrument, what other fact would strengthen the man’s claim?
(A) He never would have fed and returned the
cat had he known that he would not receive
any payment for his efforts.
(B) He believed he could sue the cat owner’s
estate.
(C) The majority of the funds in the cat owner’s
bank account were royalties from a series of
television commercials starring the cat.
(D) The cat owner’s promise to him was in
writing.
(B) If the man had a reasonable (i.e., good faith) belief in the enforceability of his claim, his surrender of the claim is valid consideration.
(A) is wrong because his motive for feeding and returning the cat is immaterial.
(C) is wrong. The source of the cat owner’s money is irrelevant. In addition, the accounts were held in joint tenancy and any interest the cat owner may have had in the funds ended when she died.
(D) is wrong because there was no consideration given for the cat owner’s promise and the fact that it was in writing does not change the lack of consideration.
Two neighbors owned summer homes adjacent
to each other on the lake. After a week-long
stay by the son of one of the property owners,
the neighbor called the owner and said that his
boat dock had been badly damaged and was
told by another resident that the owner’s son and
some friends had gotten drunk and accidentally
crashed their boat into his dock. The owner was
surprised at the accusation because he was sure
that if his son had caused the damages, he would
have told him. However, he did not want to get
into a dispute with his neighbor, so he told his
neighbor that he would have the dock repaired
and pay for the repairs if the neighbor agreed not
to bring a claim against his son for the damage
to the dock. The neighbor agreed, and the owner
hired a local carpenter to do the work. Later,
however, the owner discovered that his son
did not damage the dock because the damages
occurred after his son had returned to college.
Is the owner obligated to pay for the repairs?
(A) No, because the owner never really believed
that his son caused the damage.
(B) No, because his son in fact did not cause
the damage.
(C) No, because the neighbor was wrong when
he accused his son of causing the damage
and it would be unfair to enforce an agreement
when there was a mutual mistake of
fact.
(D) Yes.
(D) Modern courts would hold that a promise to forbear suit on a claim that the promisor honestly and reasonably believes to be valid is good consideration to support an agreement, even if the claim ultimately turns out not to be valid.
Hence, (A) and (B) are wrong. (C) is wrong because mutual mistake is not a defense when the adversely affected party bore the risk that the parties’ assumption was mistaken. To be a defense, it must be a true mistake, not merely an uncertainty.
Here, the owner always had the right to investigate the truth of the facts before he agreed to pay for the dock.
A general contractor about to bid on a construction job for an office building invited a carpenter and several others to bid on the carpentry work. The carpenter agreed to bid if the general contractor would agree to give the carpenter the job provided that his bid was lowest and the general contractor was awarded the main contract. The general contractor so agreed. The carpenter, incurring time and expense in preparing his bid, submitted the lowest carpentry bid. The general contractor used the carpenter’s bid in calculating its own bid, which was successful.
Which of the following best supports the carpenter’s position that the general contractor is obligated to award the carpentry subcontract to the carpenter?
A. The carpenter detrimentally relied on the general contractor’s conditional promise in preparing his bid.
B. The carpenter gave consideration for the general contractor’s conditional promise to award the carpentry subcontract to the carpenter.
(B) is correct.
The carpenter’s bid was consideration for the general contractor’s promise to award the carpentry subcontract to the carpenter if his bid was the lowest and the general contractor was awarded the main contract. Thus, the general contractor and the carpenter formed a contract.
Two elements are necessary to constitute consideration.
First, there must be a bargained-for exchange between the parties; and second, that which is bargained for must constitute a benefit to the promisor or a detriment to the promisee.
The carpenter and the general contractor agreed that the carpenter would supply a bid that the general contractor could use in its own bid. The carpenter’s bid was bargained for and was a benefit to the general contractor, so it constitutes consideration sufficient to support the general contractor’s conditional promise to award the subcontract to the carpenter.
Conditional promises are enforceable, but the duty to perform does not become absolute until the condition has been met or is legally excused. The conditions in this contract were met-the carpenter’s bid was the lowest and the general contractor was awarded the main contract. Thus, the general contractor is under a duty to perform his promise to award the subcontract to the carpenter.
(A) is not the best answer. The carpenter is seeking specific performance of their agreement so that he will be awarded the carpentry subcontract. If the carpenter uses a detrimental reliance or promissory estoppel argument, he would be conceding that he gave no consideration and there is no contractual obligation, but he should be awarded damages to prevent injustice. Courts will often limit damages under this theory to reliance damages, which could be much less than the value of the subcontract.
If the property owner breaches the contract during construction, the builder is entitled to …
… any profit he would have derived from the contract plus any costs he has incurred to date.
If the builder has mitigated his damages, any losses that are avoided must be subtracted from this amount.
